Deciding on the type of bankruptcy that is right for you

If you struggling with debt, you may be considering bankruptcy as an option, but do not know which type of bankruptcy would be right for you. As a consumer, you have a choice between Chapter 7 and Chapter 13 bankruptcy, since individuals do not typically use Chapter 11. Although both types of bankruptcies end with a discharge of debt, means of obtaining the discharge differs. As a result, the type of bankruptcy that is right for you depends on your circumstances.

Chapter 7

In Chapter 7, a trustee is appointed by the court to sell any nonexempt or unencumbered assets that you have and apply the proceeds towards your debt. Fortunately, the majority of Chapter 7 filers do not have many assets that are nonexempt or not encumbered, so the majority of filers do not have any assets sold during the process. Once the sale has been completed, you receive a discharge of most of your debts that were not fully repaid by the sale's proceeds.

The chief advantage of Chapter 7 is that the process is quick. Most filers receive their discharges in as little as three months after filing. However, since the process involves liquidation, it is ideal for those with few nonexempt or unencumbered assets. Chapter 7 is not an ideal solution if you are facing foreclosure. Although filing Chapter 7 can delay the foreclosure process, which can give you some time to catch up on your mortgage, it cannot completely stop it, unless the mortgage is kept current during bankruptcy. In addition, Chapter 7 requires filers to pass a means test before filing. Although most filers have no problem passing the test, those with a significant amount of disposable income may not qualify.

Chapter 13

In Chapter 13, the threat of losing assets does not exist, because there is no sale. Instead, your debts are consolidated into a payment plan and are repaid in monthly installments over a three to five year period. Although it sounds like you would have to repay all of your debt, that is not the case. In most instances, you would have to repay little (or none at all) of your unsecured debt (e.g. credit cards and medical bills) under the plan. Once the plan has been completed, you receive a discharge of most of your remaining debt.

One of the main benefits of Chapter 13 is the protection of your assets, which makes Chapter 13 ideal if you wish to keep your home, secured property or nonexempt assets. Unlike Chapter 7, Chapter 13 offers superior protection against foreclosures and repossessions. Chapter 13 stops repossessions and foreclosures, allowing you to catch up on your secured debt (e.g. mortgages and car loans) over three to five years. As long as you make payments under the payment plan, your lenders may not foreclose on your home or repossess your property.

Aside from the longer bankruptcy period, the main disadvantage of Chapter 13 is the income requirement. In order to qualify, you must show that you have a regular and sufficient income to put towards the payment of your debts.

Consult a bankruptcy attorney

When deciding which type of bankruptcy to file, it is important to have the advice of an experienced bankruptcy attorney. An attorney can fully assess your situation and recommend an option that would be best for you.

Frequently Asked Questions

  • I hear bankruptcy is a lot harder to file now. What is the difference?
    • Since Congress passed the new bankruptcy law in 2005, it is necessary to take two bankruptcy counseling courses. The first bankruptcy counseling course must be taken before you can file your bankruptcy petition, and the second bankruptcy counseling course must be taken before the court will issue the discharge order relieving you from your debt. Both bankruptcy counseling courses can be taken on-line for a small fee, and can be done in a few hours.

      There are also stricter requirements on who can get a total discharge of debts under a Chapter 7 bankruptcy. You must earn under a certain annual income for your area of residence, or you must be able to pass a means test provided for by the bankruptcy law. Under this means test, your income is matched against a formula for average monthly expenses in your area of residence to determine your monthly disposable income. Your debts are compared with your monthly disposable income to determine if you can afford to pay your debts. If you do not pass the means test, you may still get bankruptcy protection through a Chapter 13 bankruptcy where you pay some or all of your debts through a payment plan. While these restrictions limit some people, the bankruptcy attorneys at Bailey & Gunderson have found that the vast majority of people who need the protection of a bankruptcy are still able to take advantage of it.

  • Can I get all debts discharged through Bankruptcy?
    • Under Chapter 7 bankruptcy, you may get a total discharge of your debt. However, some of your debts may not be dischargeable. For instance, income taxes may not be discharged except where the debt is at least three years old, and you filed your income tax return timely. Student loans and child & spousal support obligations are also not dischargeable. Debts incurred through fraud are, likewise, not dischargeable. You may, however, apply to pay these debts through a Chapter 13 payment plan. The bankruptcy attorneys at Bailey & Gunderson can show you how.

  • What happens in a Chapter 13 bankruptcy plan?
    • In a Chapter 13 Bankruptcy plan, you typically pay your debts over a 3 to 5 year period. Each month, you make a payment amount (usually through a wage deduction order from your paycheck) which is then distributed by the bankruptcy trustee to your creditors. Secured debts, such an automobile loan, shall be paid through your Chapter 13 bankruptcy plan. Your non-secured debts will be paid from 1% to 100% of the total amount of your non-secured debt, and will be paid interest-free. The percentage of your non-secured debt that you must pay will initially be determined by the bankruptcy attorneys at Bailey & Gunderson. Once you have completed your Chapter 13 Bankruptcy plan, any remaining debts not paid through your Chapter 13 bankruptcy plan shall be discharged.

  • Will I lose my house, car or retirement savings by filing Bankruptcy?
    • The bankruptcy attorneys at Bailey & Gunderson will work with you to minimize the assets (if any) you may have to surrender when you file for bankruptcy. You are entitled to keep a certain amount of assets, which are "exempt", from seizure by creditors or the bankruptcy trustee. If the Chapter 7 bankruptcy exemptions do not provide enough protection, the bankruptcy attorneys at Bailey & Gunderson can develop a Chapter 13 bankruptcy plan that will preserve your assets.

      Working without an attorney, or with inexperienced counsel, may result in unpleasant surprises for you, as you may have to forfeit assets that you could have saved with better planning. The bankruptcy attorneys at Bailey & Gunderson can show you how.

      The attorneys at Bailey & Gunderson have filed over 1,000 bankruptcy cases. We offer a free initial consultation, and reasonable payment plans for our bankruptcy clients.

      Since 1995, the law firm of Bailey & Gunderson has assisted bankruptcy clients in the greater Cincinnati area (Hamilton, Clermont, Butler, Warren, and Brown Counties). If you have questions or need information about bankruptcy, please call our Cincinnati office at 866-540-8424, or email us.

  • Why Choose a Dissolution of Marriage?
    • A dissolution of marriage offers many advantages over a traditional divorce. The first consideration for many couples is that a dissolution of marriage is a much faster process than a contested divorce. Once your petition for dissolution of marriage has been filed, a hearing before a judge or magistrate shall occur within 30 to 45 days. A dissolution of marriage is usually much less expensive - both in terms of attorney fees and costs, as well as emotionally, because the spouses resolve the issues between them by agreement.

      It is a common misunderstanding that in a dissolution of marriage, the couple hires one attorney who works with them to resolve the issues and generate a separation agreement. In fact, an Ohio attorney can only represent one of the spouses. The family law attorneys at Bailey & Gunderson help to identify all of the issues which need to be addressed in your unique situation. Our firm will work with you to identify all of the assets and debts associated with the marriage, and to determine the most equitable and fair distribution of those assets and debts between the spouses. We also are committed to serving the best interests of your children. Some parents choose to have a shared parenting plan, which allocates the parental rights and responsibilities between the parents, including parenting time, child support, decision making, and payment of health insurance & expenses.

  • What Factors Does a Child Support Calculation Take Into Account?
    • Ohio child support law uses a formula to calculate child support. The law and the formula it establishes look at a number of factors in determining child support. These factors include:

      * The number of children involved

      * The gross annual income of both parents

      * The monthly child support obligations of either parent for other children

      * Existing spousal support obligations from previous marriages

      * Monthly day care, education and health care expenses

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